I am the curator/executor of my 103 year old grandmother. She is alive and doing well for the most part. Lately she’s been giving me access to her finances, so there are no surprises if she passes away.
I just looked at her investment account statements and discovered that her advisor bought hundreds of thousands of dollars worth of five bank stocks last year, just in time for her to lose her money.
““The advisor is the son of the advisor my grandmother used decades ago.””
Her losses amount to approximately $300,000. I brought up the subject and she said she was too tired and didn’t have the fight left in her to argue it. However, she is very worried because she needs the money for care.
The advisor is the son of the advisor my grandmother used decades ago. I don’t understand why these types of purchases were made for her at age 102, when much safer investments were possible.
I wonder if I have an opportunity to challenge this company. I have her power of attorney. If so, can I do this now?
The grandson
Dear grandson,
As the trustee/executor of your grandmother’s estate, this happened under your watch, and you must act immediately so you can avoid running out of time. It seems unfathomable that he would make such an investment. It’s time for a forensic investigation. What was the agreement between the advisor and your grandmother? Is there a paper trail? Did he ask her to sign any documents? Did he pressure her or act without her knowledge?
Every investment has an element of risk, and the S&P 500 SPX,
Dow Jones Industrial Average DJIA and Nasdaq COMP suffered significant losses last year. The burden of proof would be on you if you were to sue your grandmother’s financial advisor on her behalf. But based on what you’ve said, it’s hard to justify buying individual stocks for someone her age – if he bought them. Did he actually buy them? Or did he book this as an investment loss? There are many questions that need to be answered.
“Unfortunately, this isn’t the first time I’ve heard a story similar to yours,” says Larry Pon, a CPA based in Redwood City, California. “Instead of suing the broker, complain to the broker’s manager. Each brokerage firm has a compliance officer who ensures that their brokers comply with the rules. They will have procedures in place for remedial action. They can reach a settlement with you to avoid reporting to regulators or negative publicity. The brokerage also has insurance to cover these losses.”
Not all money managers are fiduciaries – that is, professionals who are required to act in their client’s best interests under the Investment Advisers Act of 1940. Find out if your grandmother’s advisor is a fiduciary – rather than, say, a broker-dealer – and whether he is a member of the Financial Industry Regulatory Authority. Certified financial planners have similar codes of ethics. It’s time to sound the alarm.
There is a good reason why consultants and planners are members of professional bodies. Finra operates the Office of Dispute Resolution, which acts as an arbitrator/mediator for members and investors in such cases, according to law firm Haselkorn and Thibaut. “These claims do not involve representations and are typically faster, more efficient and less expensive than many alternative forums available,” it says.
“‘There will probably be counter-arguments and red tape. Expect your grandmother’s advisor to defend herself.’”
“Check that she has given the agent permission to do anything they want,” Pon adds. “You need to change these permissions. If you don’t get a satisfactory answer, consult an attorney for legal remedies and move the account elsewhere with an investment manager who will invest your grandmother’s money wisely. You can also contact your elder abuse prosecutor. They handle these types of cases and can prosecute the broker criminally.”
So what is negligence? The Gibbs Law Group provides some examples of possible negligence. “A good financial or investment advisor should understand your circumstances as an investor and only recommend suitable financial products that suit your age, investment objectives, experience and desired level of risk,” the law firm says.
In theory, your grandmother’s advisor should be able to support his investment choice. “But negligent advisors will sometimes steer you toward risky or unsuitable investments to obtain higher commissions,” the law firm notes. “If your financial advisor has placed you in an unsuitable investment for any reason, you may be entitled to a monetary recovery.”
It appears that your grandmother’s advisor did not take sufficient steps to diversify her portfolio and protect against excessive losses. He has been enjoying the ‘halo effect’ for far too long. Presumably he inherited his father’s business, shared his last name, and shared many things with his father other than, it seems, common sense. Buy five individual stocks for a 102-year-old woman? My gut reaction was: what was he thinking? Something doesn’t smell here.
There will probably be counterarguments and red tape. Expect your grandmother’s advisor to put up a defense, no matter how weak or aggressive that defense may be. For example, he could argue that he bought these shares for the estate. And financial institutions have been known to find a reason not to recognize a power of attorney in certain situations, such as if the account was held in a trust or if it is not a durable POA.
Finally, most investment contracts contain an arbitration clause. Finra and the Securities Industry and Financial Markets Association (Sifma), a trade group representing securities firms, banks and asset managers, argue that arbitration saves all parties valuable time and money. and helps facilitate smaller claims from private investors. Good luck with your investigation and I urge you to take action so this doesn’t happen to anyone else.
“It does not appear that he took sufficient steps to diversify her portfolio to protect against excessive losses.”
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